Bankless - ETH vs. SOL: A Professor's Take | Omid Malekan

Starting point is 00:00:00 We're going to see more and more Tradfi firms do their own L2s. I think we're going to see like gaming companies and media companies and chat apps all do their own L2s. All of that is going to really strengthen the network effects of Ethereum and five years from now when some Tradfai late cover comes to me. And be like, how do I invest in the success of the network effects of Ethereum? I'm going to be like, well, the only way to do it is the own eth. Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Calm down. Ethereum is fine. This is basically the message of our guest today. He's Professor

Starting point is 00:00:48 Omid Malikon. Formerly he worked in Trotify. He's a current professor at Columbia, and he teaches courses on crypto, basically. I'm sure a number of his students will be tuning into this episode today. David, there were a number of questions we wanted to ask the professor today because his Twitter timeline is just like fantastic. Lots of hot takes. And I think both you and I detected that he sort of shared many of the bankless fundamental takes. So we want to ask him current event type questions. Like, why has ETH been underperforming this cycle?

Starting point is 00:01:17 Why is the price so low? What's the value accrual properties for ether the asset? Are Ethereum Layer 2's parasitic? All of these questions are in kind of the current meta of crypto at the time. But in order to get there, we had to ask him fundamental questions like, what are blockchains even good for? Like, why do they exist? What does he think about Bitcoin? What does he think about Ethereum?

Starting point is 00:01:36 him is one chain's block space the same as another chain's block space are these all kind of commodities. And he was able to answer these questions with a depth that I think few guests on bank lists have been able to answer them. I think Omid has approached some of the answers about like, you know, why blockchain, why crypto, what are we doing here from, you know, his own first principles perspectives. And he also draws lessons from Tradfai of where he once worked to point towards crypto and it's like, oh, well, this is how Tradfai works. This is how we built the Tradfi system, understanding those patterns will allude to some answers about like how we are going to build crypto systems.

Starting point is 00:02:12 Amid is like very well versed and like deep nuances of crypto while also being able to kind of extend those things coming from TradFi. We get into the conversation of what a high quality liquid asset is and whether or not that that is money. That was a pretty fun conversation as well as all the execution layers that we see around the crypto space and how that relates to the other execution layers that came before them. like visa and wire transfers and all of these parallels that we have. So it's always very refreshing to get a professor's take who it's his job to like get down to the basement of things and

Starting point is 00:02:44 explain these things from first principles because I'm assuming his students are always asking, but why, but why? And when you are, you know, faced with a thousand graduates always asking you why, you learn to explain things in a pretty effective way and you learn things pretty deeply. And so that's kind of the knowledge and value that we got out of Omead today. One of my favorite bulk cases for Ether the asset, actually, in this episode, one of my favorite that I don't think bankless listeners have heard yet, although you've heard David and I talk about Ether many times. This term that you were just mentioning, David, high-quality liquid asset. So stay tuned for that near the end. We'll get right to the episode. But before we do, we want to thank the sponsors that made this episode possible, including our recommended exchange to get your high-quality liquid assets. That is Cracken. Go create an account.

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Starting point is 00:05:37 Curious about how AI and Web3 can reshape the future, you can visit 0G.a.ai to explore the infrastructure as revolutionizing decentralized AI. Bankless Nation, super excited to introduce you to Omede Malekon, a professor at Columbia Business School, where he has been lecturing on crypto since 2019. He's written multiple books on crypto, including re-architecting trust, which EF researcher Doncrad says is one of his favorite books

Starting point is 00:06:04 about crypto blockchain tech and Ethereum. Omead, welcome to Bankless. Thanks, guys. Very excited to be here. I mean, you've stumbled on our radar, mine and Ryan's radar, from some banger tweets that we enjoyed, and also your books that you've written,

Starting point is 00:06:17 but I think my introduction to you can only do so much justice to who you are. Maybe you can kind of take the reins here and just illuminate a little bit more about yourself what you do and kind of your perch in the crypto space? Sure. My very much self-appointed title is as the explainer in chief of crypto. Oh, I love it. So the thing I enjoy doing most is grappling with all of the complicated, exciting issues on the frontier,

Starting point is 00:06:40 as we head west, like you guys like to say, and then digesting it, processing it, and communicating it to everything from people in crypto to normies. I was almost forcibly introduced to Bitcoin by a friend 10 years. ago who asked me to help her buy some. And she actually ended up also participating in the Ethereum ICO. So my claim to fame is I actually went through the process of doing that, but did not invest any of my own money. I'm sorry. It's okay. The experience was well worth it. People forget fun things like the fact that your private key was emailed to you. Wow. Yeah. But I have a Shradfi background. Like in a past life, I worked in various roles on Wall Street. I was a trader,

Starting point is 00:07:29 did a bunch of other things. And what mesmerized me about crypto from day one was just how fundamentally different it was. And even going back to that first Bitcoin transaction to a wallet on my computer where I literally had no idea what I was doing. I think I just followed the YouTube tutorial. But I had a sense. I was like, this is crazy and different. And I had this intuition in the back of my mind that in the future, this technology and way of doing things, way of building trust, will one day impact far, far more than what Bitcoin was doing. So then when Ethereum came out and smart contracts and tokens and defy and everything, that vision has sort of been realized. I've been working professionally in the industry for something like seven years. So you mentioned

Starting point is 00:08:14 I wrote a couple of books. I worked as a in-house crypto expert at City Ventures, which is a part a Citibank for like three and a half years. And that was an awesome experience. I actually think everyone in crypto would be really well served if they spent some time in a TratFi context for two reasons. One, if you want to disrupt something and replace it, you are going to be a lot more effective if you do it from a place of knowing and understanding, as opposed to a place of like, we're just going to tear it down and build something better. The other thing is there's a lot that TratFi actually gets right. And a lot of knowledge and experience that's beneficial to us as we're trying to build a decentralized, open, permissionless financial system. So I did that. And now other than teaching and

Starting point is 00:09:04 various other academic pursuits, I do consulting, almost like randomly with ideas and projects that come my way for crypto firms, law firms, trade groups, trad-fi firms that are still trying to wrap their arm around this thing. And usually my area of expertise is that sort of like the intersection of the two. How do we take this brand new frontier and combine it with existing knowledge to just build something that's better? The Venn diagram of people who were in Tradfi in like the old world, but that were also early to crypto, I think it's actually really small. I think Tradfi people tend to need to have this extra step of getting into crypto, which is like unlearning a bunch of things before they can then learn crypto.

Starting point is 00:09:50 And so I want to kind of just like double tap on that part of your experience, being inside of the TradFi system before crypto was even built out in the world of infrastructure and payments and defy and all this stuff. Just like early Bitcoin transactions, you know, the Ethereum ICO. Did you have like an aha moment or just something that clicked in the early days of crypto that you can kind of share and illuminate just to kind of further illustrate your perspective here? Absolutely. It was actually, I can tell you, I don't remember the exact date, but I can tell you the moment, which is that my friend was. was like, I want to buy a couple hundred dollars worth a bitcoin. This is when Bitcoin was worth like a couple hundred bucks, so I don't know, one or two bitcoins. And I didn't know anything about it. In fact, before this, my understanding of crypto was sort of like what a lot of the

Starting point is 00:10:33 no-coiner say today, which is like, it's weird internet money that only appeals to drug dealers. But she was like, please help. And I was like, okay. And I opened a Coinbase account, funded it with her bank account, bought the Bitcoin. And at this point, I was like very disappointed. it. I was like, this is like, you know, Coinbase interface circa 2013-14. I'm like, this is just a really poor version of what I was using in TratFi a decade earlier when I was a professional futures trader. But then I was literally like, okay, well, what does one do with the Bitcoin? So I probably Googled what do you do with a Bitcoin? And this was also around the time amount gawks. So the one thing that came up is like, don't keep your coins on exchanges. You got to transfer it to your own wallet. Like I said,

Starting point is 00:11:18 I followed a tutorial. I had no idea what I was doing. I don't have a technical background. I knew nothing about cryptography. I'll never forget when I first went to withdraw from Coinbase and it was like, enter your Bitcoin address. I was like, what's an address? Is it like Omid at Bitcoin.com or something? And then when I looked it up and I saw that it's, you know, the alpha numeric string, I'm like, but this is ridiculous. That's never going to work. Like people are not going to use this. but I withdrew the coins to some old original Bitcoin wallet on my desktop. And then after whatever number of minutes, it said, your coins have arrived. And this actually blew my mind.

Starting point is 00:11:57 Because even though I didn't know much about it, what I knew was all the ways in which I could screw up. Like just what I read, I was like, man, if I put in the wrong address, Bitcoin gone forever. if I didn't back up my wallet. I didn't even know what a private key was. I just knew like you have to back it up. Coins gone forever. And at the same time, I'm like, oh, but keep it on the exchange.

Starting point is 00:12:22 Exchange gets hacked. Coins gone forever. And put together, something started in the clicking in the back of my mind when I was like, wait, nothing I've ever used in Trifoy ever works like this. You just don't worry. If you have a broker's account, a bank account,

Starting point is 00:12:37 you don't worry about this kind of thing. And back then, a lot of people would say, oh, look at this stupid crypto thing. Like, it can be lost, it can be stolen. But somewhere in the recess of my brain was this idea that, wait, isn't that true for every historical store of value? Not even store a value of anything that has value, right? Like, it's true for gold. It's true for a rare piece of art.

Starting point is 00:13:03 It's true for a $1 bill. And in all those contexts, the fact that it can't. be lost or stolen is not a bug. It's a feature because that's what makes it scarce. And even though I didn't know how any of this blockchain stuff worked, I was like, this is the first digital thing that has physical properties. And in fact, I think in my first book came out in like 2018, that's how I described blockchain. So technology that gives physical properties to digital items. And now contrast that with my experience of tradfi going back to your question, which is like you kind of know you never own anything.

Starting point is 00:13:42 You have accounts, you have balances, but you just know that there's like eight intermediaries between you and the actual asset. And the worst case scenario is like the 2008 financial crisis where the intermediaries blow up and your asset just goes away. But even on any given day, there's censorship. And even when there isn't censorship, those intermediaries have so much power over all of us. Now, their regulations and laws about what they can do, but they can raise prices and decide who they want to serve and who they don't, which happens to be the opening line of the Bitcoin white paper. So that was my genesis. I didn't even have the vocabulary to call it digital scarcity, but I was like, that's cool. And then as far as infrastructure is concerned,

Starting point is 00:14:29 whatever's happening with this Bitcoin thing and later Ethereum is unlike how TritFi works. And then I developed this thesis that in the future, this is going to impact everything. And, you know, 10 years later, I'd say we're well on our way. I mean, this is very resonant with, I think, how David and I came into crypto and, like, what we see as the value proposition of this space. And I love that you call yourself kind of like an explainer in chief because I think you maybe have a way of explaining this to Tradfai. You also obviously have your students that you explain it to.

Starting point is 00:14:59 You know, there's a new cohort to kind of explain all of this to. And that is every single cycle that we see in crypto, every single vintage year, we have a new crop of crypto people who come to the space for various reasons. And like you can almost see the vintage year of every single person that comes into crypto based on why they came, what their belief system is. And so for like the first cyclers, for maybe the crypto youngsters out there, I think a lot of them actually haven't heard the story of why crypto is important. I mean, maybe they haven't even heard the case that you just gave of like bear instrument, digital scarcity, property rights. And so let's start with maybe the explainer, Omid, to use your powers of explainer in chief, if you will.

Starting point is 00:15:46 And like maybe target, not tradfi, yeah, but maybe target the new crypto natives who have, they just purchased some meme token or they're like using a wallet for the first time. Can you get to the fundamentals of what blockchains actually do? Like if you were to explain this, maybe the perspective of trust is kind of your book, verifiability, integrity. But how do you explain this to somebody who's new to crypto? They're curious about it. But they just don't have the 10 years in the space and don't have these values really reinforced. So what is blockchain? Continuing from what I said, that blockchain is a technology that gives physical properties to digital or virtual items.

Starting point is 00:16:25 Let's break that out. So for like the history of humanity, people have needed things that are considered valuable. They're valuable either because they're productive, like they're commodity, or they're valuable because they communicate status, like jewelry. But that's just foundational. Everybody can relate to that. And until very recently, the vast majority of things that were valuable were physical. And when something's physical, it has inherent scarcity. Now, obviously, like, you know, gold is more scarce than aluminum. But even like aluminum has inherent scarcity because if I have aluminum and I give it to you, I don't have aluminum anymore. Like we get caught up in crypto with the technical jargon of the

Starting point is 00:17:11 double spend problem, but physical items don't have a double spend problem. You can't just make more of them, you know, unless you're like in the world of Star Trek or something. And that's been foundational. And then with the scarcity usually comes fundamental property rights. And I'm not even talking about where property rights, like what's enshrined in the legal system. But you know that saying possession is nine-tenths of the law. What that means is whoever possesses something is the owner to begin with. And then there are laws as to things like, well, we need deeds for property. Somebody could come and steal your aluminum or jewelry, and then there's a way that you can go get the state to force them to give it back.

Starting point is 00:17:52 But these aren't even things that economists talked about, by the way, because this is just like how life works. how the world works. But what's happened in the last century, even before the internet, was that more and more of our assets have become things that are virtual. So if you think about like capital markets, like stocks and bonds, right, there were once actually in many places bear instruments, like you had a certificate that said this is a stock. And that was it. Whoever owned the stock was the rightful owner. There was no database or registry anywhere. But whether it's capital markets, if you think about intellectual property like brands and patents, and then like fast forward all the way to the digital age where you have your followers on social media or the

Starting point is 00:18:39 items that your character has collected in a MMO video game. These are all things that are valuable. Nobody questions that. But the problem is that our system of preserving scarcity and property rights don't work in that context, right? Because we no longer have like physical atoms that you can't just copy. We now have bits of data. And data is the least scarce thing on the planet. Data is unbelievably easy to copy, to edit, to delete, to destroy whatever. So what we did until January 3rd, 2009, as the newspaper cover indicates, is like we took the old ways of trying to preserve scarcity and property rights and applied them to virtual items. So we had like banks and brokerages and we had regulators and then more recently we have social media corporations, we have video game corporations

Starting point is 00:19:37 and it's just not working. It's like we've taken the old way of doing things and thrown new sorts of value into it. To me, the fundamental appeal of blockchain and crypto is that we can sort of go back to the way things work. And my epiphany, when I did that first Bitcoin transaction, was that this fear that I have of something going wrong is good, because it means that this asset is scarce, and it means that there are certain inherent property rights that cannot be violated. The downside of that is, of course, if I screw up, I can't just like a credit card call the company and say, hey, can you send me more Bitcoins, but that's how value has always worked. So putting it all together, I think blockchain is just a better way to build trust in a digital economy. And even though it's underneath the hood extremely

Starting point is 00:20:33 complicated, the net result is elegant. I have a wallet, like my physical wallet. It has assets in them and I control their fate. That's so fascinating. I've long sort of felt that, but I don't think I've ever put that into words. Like when you send your first Bitcoin transaction or an Ethereum transaction, that fear that you get, you know, that time where you're like checking, then double checking, then triple checking the transaction. Because you know if you send this transaction, it's irreversible. You know, I used to play more games than I play now. It was a RPG game called Diablo 2 specifically. There was a mode setting. Like normally when you play Diablo, you sort of, you die and then you respond somewhere and you're a few levels back, but you kind of like work your way back to where you

Starting point is 00:21:15 were, right? You could also set up Diablo for something called hardcore mode. Okay. And in a hardcore mode, when your character that you've leveled up, you spent hours grinding these dungeons to get to kind of like level 30, level, you know, 40, whatever, your necromancer. And let's say they die. In hardcore mode, they don't come back. They're gone. It's over. And what I found when I played Diablo two on like hardcore mode is like the game style was like very different. Everyone plays. Everyone plays. played like much more consciously. The stakes were higher. It all felt a lot more real. And I think that's kind of what you're saying. It's just like, you know that it's decentralized. You know that it's bankless. You know that there's actual digital scarcity because the stakes are high. If you don't feel that fear,

Starting point is 00:22:02 like when I go pay with my credit card, a coffee, I'm not terrified that somebody's going to take my money. It's all irreversible. It's like whatever. But like you know that it's real because you feel that level of fear. I don't think I've ever thought about it that way, but that's like a perfect articulation. Thank you. And the thing to remember is that I'm not arguing for like we move to a world where all assets are bearer assets and everyone does self-custody. This is one of the things I disagree with a lot of like the Bitcoin Maxis. If you look at going back to the history of the economy, even in the societies where people relied on bearer instrument like gold coins, they would still enlist the help of professionals to help them protect it. It's just like common sense. You don't want to be

Starting point is 00:22:47 walking around with all of your like net worth in your pocket because then someone has an incentive to murder you and take it. But to me, what's special about crypto is at optionality. The fundamental default state is bearer assets that people own and control and access to censorship resistant. But if you, or more likely, like if you're a big corporation or institution or something, you want to hire a custodian to help you protect that assets, you can. And I would advise you should. Because again, like if we all want to be in the world where like every pension fund owns billions of dollars worth of crypto. But what we don't want is a world where the CFO, the pension fund is walking around with like a ledger nano in his pocket holding all the funds assets. But the optionality. is really the special source of crypto. Because not only does it mean that when you want self-sovereign ownership, you can have it. But it means the service providers have to fear you opting out. So I think the future of crypto will actually in some ways look a lot like TratFi.

Starting point is 00:23:53 We'll have banks. We'll have custodians. We'll have large companies like a Coinbase whose job it is is to help people protect their assets. But they're going to be so much better than the TratFi equivalent because we will always have the optionality to say, you know what, forget it. I'm going to push a button, take my assets back, and give them to your competitor. I do really appreciate this idea that the TradFi system is trying to virtualize a lot of the old world assets. Like in the modern day and age, the logic of our Wells Fargo Bank account, the logic of Visa all kind of like collapses back down to like this first

Starting point is 00:24:29 principle notion is that somebody put their gold in a bank somewhere in order to trust the bank. And then like the layers of intermediaries were all created to make that an easier process and abstract away all the complication. Like a banknote, I think is the first abstract, the first virtualization of something. Still virtualization in like the real tangible world, like it's still a physical object. But that's just like the first step to make it virtualized on the internet for later when we would invent the internet. And a blockchain is just wiping the slate clean of all of that layers of intermediaries where I think Nassim Taleb would love to tell us about all the different like long-tail risks that come with like layers and layers of

Starting point is 00:25:08 intermediaries to allow for the virtualization of value to show up on the internet. And then the blockchain just allows us to kind of just like clean slate and put the virtualization natively into the internet where we all exist in today's age anyways. Using that perspective, Omead, I want to pick your brain about like how you think a blockchain ought to be designed. Using this frame of reference, what makes a good blockchain a good blockchain? If this is what blockchains are for, if this is the true north for what blockchains do, how should we think about good blockchain architecture? Good blockchain architecture starts with fundamentally valuing decentralization.

Starting point is 00:25:47 And I don't mean that as some kind of like ideological, rara corporations or governments are bad. I think both will play a major role in the blockchain world in the future. But that's literally the only thing that makes a blockchain special. and we take it for granted that in our world, we make major sacrifices to achieve it, right? Sacrifices in terms of performance, the user experience, complexity. But if we're going to do that, then we should really do it right. Otherwise, please, please, for the love of God, just use a database.

Starting point is 00:26:19 We have great databases. They're unbelievably efficient, fast. No cryptographic bloat. But I think a good blockchain system has the basic properties. And this is actually what my class is a lot about it, but just these first principles. Like it has to be permissionless. Participation in running it has to be open. It has to be transparent.

Starting point is 00:26:43 It has to be distributed. It has to be public. And as far as the performative features of it, just to like drill it down, the three things it must have is what we call safety. but that just means it protects everyone's property rights, what we call liveliness, but that just means that it's resilient and just, none it doesn't never go down.

Starting point is 00:27:05 Nobody has the power to take it down, even if they wanted to. And then what we call censorship resistance, which is just, it's open to anyone who's willing to play by the rules of the system. Okay, so that's how you would characterize decentralization. So I wanted to ask you,

Starting point is 00:27:19 I was talking earlier about this new generation of crypto users. Every year you get sort of a new generation. Sometimes David and I, I call the kids, right? You know, so the kids, let's talk about them for a minute. What's something you think the kids get wrong about crypto? Something that they don't appreciate maybe, this new generation of users that's using just

Starting point is 00:27:39 like, we could scale it to infinity TPS. What do you think they get wrong? What do you think they're missing? Can I first start by talking about what the kids get right, if that's okay? Yeah. Just because, so in my class, which they're not kids, but they're on the younger side. Every year I've done this, I've asked them before. class starts, they have to write a paragraph on why they're taking the class.

Starting point is 00:27:59 What's the class called? I mean, it's called an introduction to blockchain and cryptocurrencies, a very bland name that's designed to mask just how awesome and exciting. What's the demand for that class? Like, are very high. Very high. How many students in the class at once? Just the limit the school sets is 75 students.

Starting point is 00:28:18 It has to do with classroom size. And more often than not, it's close to maxed out and there's a wait list. And the reason why is really interesting. So I started doing this in 2019. There was some interest. But like, I'd say a third of the students who, when they filled out the survey, they were like, I think this is all a scam. And that's why I want to take this class, which, by the way, to this day, those are my favorite kind of students. Because I think it's the height of intellectual integrity if you think it's a scam, but you decide to go through the process of taking a graduate level course.

Starting point is 00:28:52 Right. And there were people who would take the class and I would ask them at the end, I'd be like, do you still think? At the end, no one ever said, oh, yeah, it's a scam, but there were people who said, I still don't believe in it.

Starting point is 00:29:02 And I love them. That, like, informed skeptics are my favorite people. I like them a lot more than uninformed believers. But anyway, what happens now is that the typical student who takes my class does so because they think this is inevitable. And they think I teach at a business school. It's going to be a part of the business world. Some of them actually want to go and work in crypto, which is very exciting.

Starting point is 00:29:26 A bunch of my former students currently do, which is deeply rewarding. But for the average Columbia Business School MBA student, they say, I want to go into VC, and I think it's important to know how to do Web3 VC. I want to go into finance and banking, and I think that tokenization is going to be a big part of finance and banking. And the other thing I've noticed is this is the kids thing. we're now seeing the generation that grew up on the internet more or less. The question of like digital assets is not a question to them.

Starting point is 00:29:59 To them it's like, of course they're going to be digital assets. And of course we're going to have to have ways that protect people. And Ryan, a lot of them like they come from the world of playing video games. And you spend a lot of time as a gamer. You might not be able to intellectualize it the way we do, but you know that you spend a lot of time, energy and money, collecting assets, but that there's some opaque database behind it. And what if the gaming company goes bankrupt? Assets gone. What if they decide that your country, people of your country are now

Starting point is 00:30:30 sanctioned and can't play anymore? Assets gone. So that's what the kids get right. To go back to question, I think the biggest misnomer of the current crop of people coming into crypto is that they think of layer one blockchains as just networks. And they're like, oh, it's a network. And a network needs to be really, really fast, and the network needs to have, like, insane throughput. And of course, the network is going to be going to run out of, like, the best, most connected data centers and have the most sophisticated hardware. I think that's a very dangerous design philosophy for any blockchain. Okay, this goes to a tweet. I want you to get into from just your recent timeline, which I just love. You just, like, shoot some bangers out here. So you said this.

Starting point is 00:31:13 In the years to come, the greatest false belief that will be invalidated is the belief that all on-chain settlement is equal and fungible. Bitcoin, Ethereum, Salana, high-performance chains with heavy concentration, et cetera, et cetera. If you believe all of these things are fungible, you don't believe in crypto. So what you're getting there, we're using words like fungability, but by fungibility, you mean interchangeability. I think what you're basically saying is, hey, not all block space is created equal here. Maybe that goes to what you were saying, the sort of the part that the kids get wrong, is they think that, oh yeah, let's just like make it faster. And if we can make it faster, then it's obviously better than the slower thing because it's just a network. But I think what you're saying

Starting point is 00:31:57 here is, hold on a second, not all blockchains are created equal because of your framing of property rights and settlement guarantees. Can you talk about that more? Yeah. We live in a world of tradeoffs, going back to like difficulty and complexity of building these systems. And I'm not even going to, we can get into it later, but like governance is a whole other rigumoral. But I think a Bitcoin block is the most secure thing on the internet by an order of magnitude. Bitcoin, I've been accused of being an Ethereum maxi, but Bitcoin is my first love. And you know, you never forget your first love, even when you start dating other people. But Bitcoin, just by virtue of being proof of work, by virtue of being like almost entirely just inflation-based

Starting point is 00:32:41 distribution, not a dollar was raised, because by virtue of the fact that we don't know who Satoshi is, and I doubt they're still around. All of these things give Bitcoin some of the best security decentralization, liveness, safety, censorship, resistance guarantees. The problem with Bitcoin is you can't do much with it. You can transact Bitcoin. You can do a few other things.

Starting point is 00:33:04 I'm very excited to see what happens with like ordinals and Bitcoin L2s, but I'm just skeptical that much of it will work because the other thing about Bitcoin is this simple. Once we get into like how smart contract platforms, Ethereum Salano work. Bitcoin and proof of work, there's an elegance to it. But it does one thing. It does it really, really well. I think that one thing is going to be huge and very important for the world. But to say that, like, oh, there's that. And then there's some new Ethereum L2 without fraud

Starting point is 00:33:35 proofs and a centralized sequencer or some new high performance L1 where insiders own 70% of the token supply and you need hardcore bandwidth to validate it. To say that these things are equivalent, I think, is just fundamentally a mistake. It's similar to saying, like, well, I got a little safe in my closet. That's just as good for protecting my valuables as a vault inside a bank that's 10 stories underground. Like, nothing in life works that way. And block space certainly does it. Okay, so not all block space is equal.

Starting point is 00:34:14 some block space is basically Fort Knox and like some is just like, you know, it's safe in your closet and your bedroom, just like not very secure. I think where some people get wrapped up a little bit is a word that you used earlier in the episode, which is the word decentralization. And you did define it in some ways. You gave it kind of like three attributes, but even in those three attributes, like how much is enough? How much security? How much liveliness? How much safety is actually enough? I don't know if you have a way to explain this to your students when they ask that question, because sometimes the word decentralization can almost be a purity test, let's say, in certain communities. And like, everybody wants it. So Justin's son is like, you know, Tron is defyte. Tron is decentralized, right? And like we don't have maybe the data set or the metrics to like sort of push back on that and spell it out. It almost seems somewhat subjective. Do you have objective ways to measure these things when people ask the question of, like, like, well, how decentralized is it? You just said that Bitcoin block space is some of the best settlement guarantees. How do we know that versus like some alternative layer one with higher TPS?

Starting point is 00:35:22 I have to admit, I don't have as objective of a measure as maybe I should. And I think partly, like this is the fun of like the science of crypto and blockchain to come that maybe people are more sophisticated or smarter than me will come up with it. But there are things we can say about Bitcoin that we cannot say about any, almost any other chain. One is we can say that it's been around for a long time, and that it has almost never changed for better or for worse. We can say that the censorship-resistant property has universally held true. Bitcoin has never been down. Now, trade-offs, Bitcoin has variable block times and probabilistic finality.

Starting point is 00:36:03 So these are the things I can say. I can also say the hash rate for Bitcoin is extremely high. and the cost of attacking it because the hash rate is high and because ironically you would need to get a ton of A6 that would then become useless after you succeed in attacking Bitcoin. And Bitcoin governance is resolved by which I mean like Bitcoin governance is do nothing. When in doubt with Bitcoin, do nothing. That has downsides. Like there might be great upgrades worth doing in Bitcoin that'll never happen. But the good news is you don't have to worry about governance being corrupted or like politics.

Starting point is 00:36:38 politics ruining Bitcoin. Now, move over to Tron. It doesn't have any of these features. We know that there are individuals or entities that control enough of the token supply in a proof of stake blockchain to do whatever they want. But importantly, I don't think there's like the optimal level of decentralization. And I think this is the second thing that kids get wrong when they think of networks. I think because it's something desirable and valuable, like everything else in the economy, we should have different tiers of decentralization for different use cases. So obviously, if you're El Salvador, if you're a country that's going to put like your national foreign exchange reserves in Bitcoin, you want that bulletproof security. And you don't

Starting point is 00:37:26 care what, 10 minute block times. I don't care. The fact that like fees could be high, who cares, right? Like, this is my national savings. And I want the vault. Bitcoin is the vault. But if you're trading a $5 meme coin, that's wasteful. It's completely overkill. That you can go do on some high performance chain or a not so decentralized L2. And both are fine. I think it's a mistake to say, this is better than this. It's also a mistake to say this should be the same.

Starting point is 00:37:56 It's just that we're going to have different kinds of on-chain activity for different amounts of value and economic importance. And they're going to need different levels of decentralization. I think maybe the way to frame this is we're talking about the qualitative side of block space. Blockspace has different qualities, and we can judge blockchain space on the nature of the quality of their block space. And then there's also the quantity side. I think something that we absolutely learned in 2021. And we've always kind of known is that we also need to increase the quantity of block space. But there's also like path dependencies here. The choices for how we actually supply more block space also matters.

Starting point is 00:38:35 I think it's highly related to, you know, the use cases that you're talking about. Like, we can have less quality block space in terms of, like, decentralization and trustlessness for some things. But we also definitely need more block space because we do not have the whole entire world on chain. So, Omi, do you have, like, a perspective on the correct way to supply more block space to the world? Yes.

Starting point is 00:38:56 I think, we call it modular, but really, like, a tiered or hierarchical way is the most efficient. And I contrast that with the monolithic, right? The monolithic, which is the vision of Solana and the other hyper form of chains, is we have to scale it so we can do everything here. One network, one chain, billion dollar payments, $5 meme coins, all right next to each other. I think that's impossible. I think it's inefficient. And I think it's just like flies in the face of common sense because nothing in life works that way.

Starting point is 00:39:34 TradFi doesn't work that way, but like our lived experience doesn't work that way. So if you guys are celebrating a birthday and I want to send you a $50 Amazon gift card, I'll drop it in the U.S. Postal Service. Not the most secure, reliable, but who cares? It's 50 bucks. If I'm sending you like, I don't know, a $50 million work of art, I'm going to hire an armored truck and dudes with guns to deliver to you. It's far more expensive, less convenient, probably slower, but it's a $50 million work of art.

Starting point is 00:40:04 And if you want, like, I can get into the architecture of TradFi because all of Tradfai is hierarchical. But to me, like, we need a way to say, okay, if you need the most security, you're in the L1 or the L2 or the L3, and have a system where people can go up and down as they desire. I do want to get those lessons out of TradFi because we built financial systems before crypto. And so what did those financial systems look like? What lessons can we pull from TradFi to kind of illustrate this point? So let's take the two favorite examples of people in the world of Solana and other high-performance chains. And by the way, let me just say, like, I love Solana. I think Solana has some of the best people in crypto.

Starting point is 00:40:43 I am very grateful to people like Tolly because I think they've really introduced the new element. They've also just personally been very generous with me when I try to learn from them. But I do fundamentally disagree with when they talk about NASDAQ and Visa. I feel like those are the biggest false idols in crypto right now. because NASDAQ and Visa are not settlement systems. Like, from our perspective, NASDAQ and Visa are like trusted messaging layers or to put them in a modular context or like the L3 of the TratFi world. So let's do credit cards first, like, you know, Visa, MasterCard, whatever.

Starting point is 00:41:22 You go to a coffee shop, you swipe your card. They do not get money. Instead, they get a promise from the credit card scheme, like Visa, that eventually they'll get money. Now, it's a pretty reliable promise. There's regulations. They've been around for everybody, yeah, yeah, yeah. But if you ask the coffee shop,

Starting point is 00:41:39 did you get my money? As in like, can you turn around and take the $5 and use it to pay your employee right now? They cannot. Instead, what Visa does is throughout the day or days, it accumulates, I don't know, tens, hundreds of thousands of these transactions. It batches them.

Starting point is 00:41:56 And then eventually it resolves them with like a single payment to the bank account of that coffee shop. And that might happen in a couple of days. It might happen in a couple of weeks. I'm going to generalize here because credit cards are somewhat different in different countries. But the credit card swipe like an L3 transaction, right? It's good enough. But if you notice, you do not use credit cards to do really important things like pay rent or buy a house. And that's because the settlement assurances are very weak. So then when credit card companies pay, coffee shops, they usually do so through the banking system. So they usually do like an ACH payment. That's like the L2 of dollar payments, right? It's much more reliable and secure settlement

Starting point is 00:42:41 than the L3 credit cards. It's still reversible though. Like credit card transactions are very easy to dispute. ACH transactions can be reversed, which is why like if you use ACH to fund your Coinbase account, they don't say, all right, start trading and you can withdraw. on now. They're like, we're going to wait a week. And then the ACH transactions, the way those work is their delays, they all get batched and netted, and eventually they get settled through Fedwire. So in the U.S. and in most countries, the central bank run payment system is the L1. That's like the most secure, bulletproof, irreversible payment. Central banks can't fail because they can print money. But the way it works is it's all hierarchical because the Fed doesn't want me and you as a

Starting point is 00:43:32 customer buying coffee, right? They don't want my mother as a customer because they're like, she's going to forget her password and like called the New York Fed and they're going to be like, we can't help you reset your password. What the Fed wants to do is facilitate the most important payments that usually happen between there's only a few hundred institutions that globally get access to Fed wire. And most of the payments that they make. are massive, but they're like the batched and netted result of all the L2 and L3 payments. And this is like an efficient provisioning of settlement because everybody gets what they need. Now it's not ideal, but there's a reason why it works that way, because it would be dangerous

Starting point is 00:44:16 for me to use the post office to send someone a valuable work of art. It would be overkill for me to use the armored truck to send you a gift card. So that's just the payments version. And by the way, fun fact, 95% of all payments, like if you track individual payments in the U.S., they happen up here with things like credit cards. But 95% of the value gets settled down here at FedWire. Like the big banks are, as we speak right now, sending each other multibillions of dollars. A single big correspondent bank, like a JP Morgan, will do trillions of dollars in payments through the Fed today.

Starting point is 00:44:54 So two thoughts on this. One is to kind of, you know, complete the thought of where you're going with, like, an alternative layer one. You know, like something like super fast, like, you know, NASDAQ on chain, which is like sort of a moniker for Solana. Are you saying, Omead, you see that more as sort of like a layer three? It's not good. It's not the Fed wire. It's not the layer one. It's not the layer one. It's not the layer one. It's not the layer one. It's kind of a visa. And so you sort of. You sort of. of prefer the modular design of something like an Ethereum or even, you know, like Bitcoin, if it was able to have expressive layer twos that are trustless, because that emulates what we're doing in traditional finance. It's like a modular approach where you have the layer one being a fed wire and the strongest settlement guarantees, basically irreversible, unless you're like, you know, Jerome Powell and like, you know, the treasury and those folks. And you have kind of the layer two and then the layer three. So the modular design really makes sense to you because you're approaching this from a strength of settlement guarantees perspective. Is that what you're

Starting point is 00:45:54 saying? Yeah, I think it's actually an insult to Solana to say it's going to be NASDAQ on chain, because NASDAQ is not a settlement system. DTCC in America is the settlement system. All of the securities ownership and actual trading and transfers in the U.S. happens inside their golden ledger, which is kind of crazy, by the way. I get into that in the new book that people don't know this, but every share of a public company in America is owned by a single corporation. It's absolutely crazy. We don't own Apple stock. Absolutely. Seed and Company, which is a subsidiary of DTCC, owns Apple stock for benefit of a clearing member or a custodian who owns it for a benefit of Robin Hood, who owns it for a benefit

Starting point is 00:46:37 of me and you. But again, it's that way for a reason because if someone's just trading five grand worth of meme stocks back and forth, that doesn't need to be settled inside of DTCC, like a broker like a Robin Hood. is good enough. But when the major financial institutions are trading shares back and forth, on behalf of their customers, they need greater settlement assurances. So I fear that the high-performance chains like Solana, because they are worshipping this false idol, are just headed in this wrong direction where they're like, we're just going to need more and more capacity, right? because the millions or billions of shares that trade on NASDAQ or visas doing 50,000 TPS.

Starting point is 00:47:24 But I don't think they realize that those systems, they're not settlement systems or they're not what you want to be if you're an L1 blockchain. I mean, what about the counter example here? The idea that, hey, like, this is actually a brand new system. This is a brand new structure. We have a blank slate. We have software. We have cryptography. We can actually put like one second, one penny micro transactions next to $1 billion. stable coin transfers. And why can we do that? Well, because everything is software now. Like, all the costs of these things collapses to zero. There's network effects. There's strengths of settlement insurances and the cost of providing the world's strongest settlement insurance to a one penny transaction is actually the same as it costs to settle $1 billion. And it's because we have this

Starting point is 00:48:08 new substrate and the rules are different now. Why doesn't this perspective hold water for you? So it's true to a certain extent. But certainly even L1 blockchains should be performative by traditional standards. And I think one of the other good things that, like, Solana has done, is it's reminded the Ethereum community that while I fully subscribe to the modular L2 roadmap, we should continue to upgrade the L1, too. There's no reason not to. But they're tradeoffs, David. Like, you know, at the end of the day, latency is always going to be a thing. Consensus takes time. If you say we want to reach perfect consensus in a fraction of a second, it's not going to be as reliable as when you take five seconds to do it. There are hardware requirements. I think the bigger problem for the performative chains is there are bandwidth requirements.

Starting point is 00:49:00 Now, the counter to that usually comes like, oh, hardware gets cheaper, bandwidth gets faster. But to me, that's disrespectful to the power of crypto. Because if we achieve what we want to, the demand for block space is always going to grow far faster than the hardware costs will fall. I mean, this goes back to sort of like every blockchain wants to say they're decentralized and sort of how do you define decentralization? And I think you did a pretty good job when you're talking about, you know, Bitcoin block space versus Tron earlier. I've sort of taken to going through your approach, which is like really looking for the acid tests. And like one of the acid tests that you mentioned is like, how long has it been in existence

Starting point is 00:49:40 without sort of a transaction that's been in reverse, right? So that's kind of the Lindy effect. You know, this is sort of like Bitcoin. It's been in existence for a very long time. Another acid test that I like to use is censorship resistant. Like, is the block space filtering out transactions that a nation state just like says no to, basically? So if you go to the MEV watcher website, right, you could see the percentage of blocks that are built that just screen out all, you know, like, OFAC sanctioned things versus, those that kind of let them through. And I would contend that Ethereum is basically the one that's sort of passing that test. It is still censorship resistant. Some of the block space goes through,

Starting point is 00:50:20 and it's not OFAC sanctioned. I'm not sure that you could say that for any kind of like layer three type of system or an alternative layer one. Like you haven't seen it. It hasn't passed that acid test. And that's important as well. So I've taken to go and also like, you know, liveliness guarantees. Has your chain gone down? Like how often does it go down? These are some of the hard metrics that I've started to use to assess decentralization. I want to also comment on the kind of the broader point of like, this is how kind of Tradify works and it's all, you know, intermediated and it's got all of these layers of custodians in complexity. And it goes back to something that David and I have talked about on bankless since inception, which is like you can build banks on top of bankless

Starting point is 00:50:58 systems, but you can't build something bankless on top of banked systems. Oh, I love that. Intermediaries, right? You can build something that's centralized on top of something that's decentralized, but you can't do the reverse. You can't build something that's decentralized in top of something that's centralized. I mean, this should be basically self-evident to everyone. It just doesn't work that way. And I think about a conversation I was having with, do you know Patrick McKenzie? I know, he's kind of a trad-fi guy.

Starting point is 00:51:23 He's got a blog. He is a fascinating individual. And I was writing a check the other day, Omead. I was just like an actual checkbook. This was like to pay my taxes or something. They only accepted checks, okay? And I went through and I was looking at the numbers and it was asking the website for the state of New Jersey or something.

Starting point is 00:51:39 was asking for my account number and my routing number. I'm like, oh, cool, it's like here on the check. Everyone is written a check in the USC's that. I was like, oh, my God, this website's just you're asking for it. And with Social Security, my Social Security number of verification, it just accepts the payment. And it joinks money out of my account, an ACH transfer out of my account. I was like, oh, my God, my private keys are written on the outside of this checkbook. Like, that can't be right.

Starting point is 00:52:03 Is that really how the system works? So I go and I ask Patrick McKenzie. I'm like, hey, you know crypto a little bit. you know, Tradify, obviously. Are checkbooks really? Do the checks have private keys on the outside? He was like, yeah, that's basically how it works. I was like, okay, how is their fraud not everywhere? And he's like, well, actually, there is, and there would be, except we have AML, KYC over

Starting point is 00:52:23 everything, and the entire banking system is set up to detect fraud so that if you're writing a counterfeit check, like, good luck, you know, authorities are coming to your house, they'll catch you, they'll throw you in jail, that's kind of your proof of stake. And it brought to mind how inefficient that system is with all of kind of the different checks and bureaucracy and departments and fraud detection and all of that. And the reason we've created that type of a system is because we don't have digital bearer assets. So there are all of these.

Starting point is 00:52:54 One thing I guess I would say the kids don't appreciate is like how revolutionary crypto actually is. It's not just another fintech platform. It's not just like, you know, we're like a faster visa. we're going down to their root level and we're disrupting the settlement layer that, by the way, you don't even know exists, it's called Fedwire,

Starting point is 00:53:13 and we're even going deeper than that, we're disrupting the Fiat system. So a Jerome Powell can't even reverse your transaction or a Janet Yellen can't. So if anything, my objection to like what the kids don't understand is actually how revolutionary the shit is. They don't appreciate that.

Starting point is 00:53:28 Yeah, to your point about fintechs, I joke with my students in the first class that fintech to me is just lipstick on a pig. We took the same architecture of literally, like, but you know why they call it a wire transfer? I have no idea. Because the telegram was what enabled for you to have remote payments. Like literally you would go. And Western Union, which we now think of as a remittance provider, was once the biggest telecommunication company and one of the biggest companies in America.

Starting point is 00:53:58 Are you talking about like telegraphs? Like, you know, even before. Yeah, telegraph, yeah. Like you would go to a Western Union. union location and you say, I want to send 50 bucks to so-and-so in this other city, and they would, you know, Morse code, B, B, B, B, B, B, B, B. But in 17, whatever, early 1800s, that was a revolution in the world of payments. They have not changed much since.

Starting point is 00:54:22 There's actually not that much that's different from that to what PayPal does or Venmo, right? It's just, I mean, it's on the cloud now and there's bundling and rebundling and maybe they use mobile. But at the end of the day, it's like you have different ledgers. And then there is like just incessant endless messaging. That's what Swift is. Swift is just the communication system. It doesn't, it's not a settlement layer. And then like every bank has its own ledger within the bank. They have many different ledgers. They don't know what's going on in their own ledgers. Nobody knows what's going on in the bank to bank ledger. And then settlement happens through this like very, very, very complicated system of debits and credits. It's almost miraculous.

Starting point is 00:55:04 it works as well as it does today. And it's all like programmed in COBOL. But yeah, when you move to the crypto world, it's like, well, instead of having 18,000 different ledgers, let's have one ledger, but let everybody keep their own copy of it. But that's insane. That's amazing. Like, if two copies of something important is good, then 20,000 copies of it is a thousand times better. And that's what we have with mature networks. And I do think, like, having a lot of independent nodes for blockchains, Bitcoin, Ethereum, it's very important, right? Because it's transparency and you're like the ultimate line of defense if something goes wrong.

Starting point is 00:55:44 Other things, your point about, like, let's use public key cryptography, which did not exist when the banking system, as we know it, was architected. And, like, instead of messaging in order to transfer assets, just transfer the asset. This was one of the things when I worked at city I realized like because they were like

Starting point is 00:56:04 I don't understand how does this work how does this work how is a stable coin work I'm like you know how like intratfi

Starting point is 00:56:08 you communicate communicate communicate communicate eventually you settle in an asset they're like yeah I'm like in crypto the message

Starting point is 00:56:15 is the asset and they were like wow you just send one message and that's the money and it's yes I mean obviously it's more complicated

Starting point is 00:56:23 than that but all of this the other way to think about it I think this is actually taken for granted. Unlike fintechs and banking and stripe and like the stuff that Patrick McKenzie's of the world deserve a lot of credit for building, Bitcoin and blockchain and crypto is invented for

Starting point is 00:56:43 a world where the internet was a given. The banking system was not. FinTech were not, right? Like the original fintex go back to the 90s. That's when PayPal and Demo were found it. And you end up building a completely different model. of the financial system. If it's a given that almost everybody on the planet has one of these things, and there are many places where people don't have bank accounts, but they have one of these things. That means holding up a phone right now. And you will, like, design a completely different financial system. You'll borrow some of the learnings from the TratFi system. But, like, architecturally, it should be different than one of the differences is that you don't disclose your

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Starting point is 00:58:59 And of course, if you, depending on who you ask, you get different conclusions. Ask a Bitcoin or what the endgame looks like. They'll say something like hyper-bitcoinization. What is your perceived endgame of the underlying plumbing that we're building out here? Like, if we fast forward, 10 years, we've exhausted research and development in cryptography. We've deployed everything that we've researched. And this thing is, like, well underway. What does that look like to you?

Starting point is 00:59:23 Where do you think we're going here? I think Bitcoin just becomes like the world's backup money. I don't believe in hyperbibank. Bitcoinization. I just think it's very impractical. And again, like a lesson of Tratfi, building your entire society on hard money has some significant downsides. It's kind of ironic that now like the populace in America are like pro-gold and pro-B Bitcoin because 120 years ago, they were the exact opposite. For people who don't know, one of the most famous political speeches in American history is a rant against the gold standard. So that's Bitcoin. Unbelievably important, though, because I think

Starting point is 00:59:57 every government corporation individual will just want to hold some of it. Because when all goes to hell, whether through inflation, confiscation, war, your banking system fills, whatever, you can still use your bitcoins. They are scarce and they're censorship resistant. Beyond that, I think we will have a modular or hierarchical stack of L1, L2, L3, whatever. Most people and users will live on the higher stacks because, you know, like, I'm not that rich or that important, so I don't need Fedwire grade security. Some of this will actually look exactly or similar to how, like, you think of like your fintech account. But the back end will be tied to some chain, which will then settle to a more secure, decentralized chain, which might then settle to

Starting point is 01:00:47 the L1. I think all assets will be tokenized by which point we'll just call them assets. I'm old enough when I first started trading there was this battle between electronic trading and non-electronic trading that's kind of a ridiculous debate it was a debate now it's like you just trade and of course it's electronic

Starting point is 01:01:06 and then we'll have classes of new assets like what a native cryptocurrency is NFTs Dow's governance tokens all of that too and the world will be a better and more trustworthy

Starting point is 01:01:22 place I mean I don't know if we've ever had a guest on that I've like agreed with more in terms of like the vision and philosophy like as you're going through the way you think about kind of settlement assurances and like the properties of money in the financial system that's important I found myself just being like yep that's pretty much what I believe so now we get to kind of test that I'd like you to maybe bring out test this on Ethereum rather because I want to talk about some current discussions that are going on in crypto right now, particular to maybe the Ethereum, like, but just all of crypto and see how aligned

Starting point is 01:01:57 you are on these types of things in what you think. So there is a discussion about Ethereum kind of losing the plot, like doesn't know what it's North Star is anymore. People are worried about Ethereum. A lot of people will say, well, it's just price action, Ryan, like, okay, well, let's discard that for a minute. It is true that other ecosystems are kind of like gaining. let's say in MindShare at least. You wrote a tweet thread, which like begins with Ethereum is fine. I won't go through the rest because I'd rather have you sort of explain this and articulate it. But what's your take on Ethereum itself? Is it losing its way? Is it, you know, getting disrupted by faster alternative layer ones, you know, the Solana Suez of the world? Or do you actually

Starting point is 01:02:44 think it's fine? And if so, what's your justification for that? I think it's fine. That tweet was actually inspired by a friend of mine, a former student who works in the industry, when he said, you know what's funny is if other than the price action, like ETH versus BTC or versus Seoul, if that wasn't the case, if you just looked at the metrics on Ethereum, you'd be like, wow, this is going great. Fees are very robust. Stakers are earning a positive yield, which is rare. That actually doesn't exist in almost any other chain, meaning inflation is very low, but you can still make 3, 4% from transaction fees in MEV.

Starting point is 01:03:20 So that's great. I think the only other train that's doing that is Tron. Is that right? I think that's right. Yeah. It's Ethereum and Tron. Oh, well, Justin's Sun is doing well then, I guess. Yeah.

Starting point is 01:03:30 So let's compare those two, right? Like, then you look at like, okay, staking diversity, client diversity. These are things that, like, you know, Ethereum has this culture of decentralization that I know some people are down on right now because it's slow. And it doesn't give you the instant gratification of like,

Starting point is 01:03:48 oh, yeah, we're just pushing a new update every month. And this is, I think, part of what attracts the kids to a network like Salana, where, like, someone tweets and complain something. And then Mert responds at like, all right, great, we bootstrapped the solution for it. But, like, and credit to him, right? They're awesome. But, like, it's not in the protocol. It hasn't been researched.

Starting point is 01:04:08 It hasn't been tested. Nobody really knows how any of it works. I am amazed. Sort of like Tratford. I'm amazed that Salana works, because when I get into it in the wheeves with people involved, and I'm like, how does this work? How does that work?

Starting point is 01:04:20 They're like, well, I'm not sure, but, you know, it kind of works. So the L2, I do think, just this past week, we had Uniswap announced unichain. And I think this is the other appeal. So let's get away for a second for like the cryptoeconomic, security settlement assurances of the modular stack. I think the other underrated thing is that if you're a monolithic, L1, you have to go all in on one text stack. You have to go all in on one virtual machine,

Starting point is 01:04:53 probably just one programming language, possibly just one or two wallet providers, yada, yada, yada. And this is something I was actually, I got from some of the other people like Don Pratt or Ansgar at the EF that they said, you know, one of the reasons we pivoted to the roll-up centric approaches. We realize that we at the L1 can't decide everything. We don't want to the ones who have to decide that the EVM is the perfect, you know, the best virtual machine for the future global settlement later. Maybe it is. Maybe it's not. So the other thing that I think very exciting about Ethereum is that, and it's very early. Like I think we're now going to see a Cambrian explosion of L2s. Some of them, like the unichain, they're really trying to optimize

Starting point is 01:05:38 for actual decentralization of the L2, right? However we define that. Others won't at all. Some of them will be for people that want to play games and do meme coins. Some of them will be for DeFi. It's actually kind of annoying that most of them are EVM so far. I can't wait till like the SVM and the parallelize and the yada yada yada y'allelups go up. And at this stage in the game, that's what we want to see. We want to see that experimentation. We want to see segmentation. And in all these regards, when I look at Ethereum, you know, other than the price, but we've all been around long enough to know like price is the least informative thing in crypto. It's doing fine. let's talk a little bit more about price and maybe not in the sort of the months range,

Starting point is 01:06:20 but in kind of the years range, because I think even some of the Ethereum bears I would say would concede, oh, me, okay, yeah, the metrics look great, layer two is going just fine, the roll-up centric roadmap. Apparently it seems to work. But whoopsie, there's a problem there because L2s are actually parasitic. They're parasitic to, not Ethereum necessarily in the idea of a network, but they're parasitic to ether the asset. you take all of the defy off of the Fedwire and you sort of like move that up into the kind of the higher layers, the layer twos and layer threes, then what's the value proposition for ether the asset? And so I want to ask you this because I think you've got some insights into

Starting point is 01:06:59 ether the asset. And why is ether the asset valuable? Can you talk about that? And I think you've used this term HQLA, high quality, I think liquid asset. Maybe talk about that and you'll give us some analogs in the Tradfai world. Yeah, sure. First of all, as I tell my students, much of their chagrin, not investment advice, I have no idea of what ETH is going to do next week or next year. I bet they ask you, though, all the time. Give us the token. They're very disappointed. And then I once got booed by my own students because I had a guest speaker. And one of the students was like, hey, the professor never tells us what to buy. But can you tell us what to buy? And I just cut it off right. I'm like, sorry, we can't talk about it. And the whole class was like,

Starting point is 01:07:41 How many of your students will be listening to this podcast, though? I'm going to send it to them because I'm a big fan of this show. Yeah, so I have to be careful here and not share the cat meme coin that I think is the next trillion dollar. I'm kidding. HQLA. So yeah, this is a term I borrowed from TratFi. And the reason why is that if we're going to build a better, more decentralized financial system, we need a really good asset to build it on top of.

Starting point is 01:08:09 This is just how all financial systems always work, whether it was gold at some point, it's probably U.S. Treasuries now. HQLA, this is actually a regulatory designation post-2008 for like how much treasuries and treasury-like things banks need to hold. But high quality, as in like universally recognized as valuable, there's not a lot of credit risk or default risk. And then liquid, as in like if you have a lot of it

Starting point is 01:08:36 or somebody else has a lot of it and they have to sell, it's not going to kill the price. The market can absorb that. And I think DeFi needs this. I think Defi needs a HQLA asset for you to have borrowing, lending, leverage, more decentralized stable coins, better perps. If you're trading perps, I mean, a lot of them use a stable coin. But what happens if like the U.S. government and the federal regulators who are now very against most crypto go after a circle and say, like, we don't want U.S. D.C. used as an enabler of this illegal perp market or polymarket or something. Like, it's a risk that we have to, like today's okay. I don't think it's going to happen tomorrow, but if we're going to build the global financial system in defy, we can't take that risk. So we need an asset.

Starting point is 01:09:24 And the first candidate for like the crypto native HQLA is Bitcoin. I just don't want to get into a Bitcoin versus ETH debate, but it's more valuable and it's more liquid. It's significantly more liquid. I don't think anybody disagrees with that. The problem with Bitcoin is you can't do anything with it natively. So if you want to use it as collateral or to trade perps and stuff like that, you can only do that in a trusted fashion. You have to actually lend your Bitcoin so somebody you're like deposited at a crypto exchange. Maybe someday Bitcoin L2s will work and we'll have stable coins on Bill 2 and then we can revisit this conversation. But for now, it can't be Bitcoin. which means the AQLA asset really has to be the token of an L1 smart contract platform.

Starting point is 01:10:12 It's not going to be a DAP token. It's not going to be a governance token. It's not going to be an L2 token. I think we all know why in terms of how they're just not as secure, not as liquid, too much governance risk, et cetera. And ultimately today, it comes down to ETH versus Seoul because there's no other L1 smart contract blockchain token that's close to these two. in terms of value as in like market cap, liquidity, or even decentralization.

Starting point is 01:10:42 And when I wrote that post, I'd really thought about it. I was like, ETH just wins on multiple metrics. Let's go through it, right? One is that ETH ownership is pretty widely distributed, certainly more than Solana or Seoul, because Ethereum launched as a proof-of-work blockchain for years, and proof-of-work is much better at distribution of ownership. than proof of stake.

Starting point is 01:11:07 It's just a fact of life. It's really hard to launch a new proof of stake chain because had you get tokens into the hands of the people who are going to stake and not have them be like just a handful of VCs and insiders and the foundations. I actually don't know what the answer to that question is, but I think it's a problem. Ethereum skipped all that because it was a proof of work chain. So the distribution is good.

Starting point is 01:11:31 The foundation barely owns any also good. There's no affiliated labs that has influence or control on the network or owns significant tokens. That's good for H-QLA. It's bad for other things. Like if there was an Ethereum Incorporated that had more money, they could fund more things and do more grants or whatever. But trade-offs. So, ETH is more widely held than Seoul. It's more liquid than Seoul.

Starting point is 01:11:58 It has lower inflation. And that's important for this conversation. because inflation is like the cost of capital for defy. If you own eth and you want to go and use it in Ave, you're going to forego staking yield. But that's okay, right? Because you're foregoing like 3, 4%, but you're not being diluted. That's actually not necessarily true because I have staked ether in ABE right now.

Starting point is 01:12:25 And so I'm accruing the staking yield of the Ethereum protocol as my collateral deposit inside of Avey. Now I'm using a less liquid derivative than I am of ether itself, but I am getting the yield. Yeah, yeah. So obviously if you have like light or steak, ether, rocket poolers, yeah. But you're taking more risk, right? Like all else being equal, light or steak, eth, which I also own, by the way, has some risk. It's not a risk-free thing to go through a staking provider, and it's less liquid.

Starting point is 01:12:55 And the challenge in Solana is that Solana has a lot more inflation. So that means it's naturally going to have a higher staking participation rate. So there's less of it around. I think Solana's staking participation rate is double Ethereum's. Yeah, it's like 75% or something. Yeah, which I mean, it's like 5.something% inflation. You'd be crazy not to. And it's easier because they have delegation of staking.

Starting point is 01:13:21 But the cost of capital for defy is real. And I actually looked this morning. Like if you go on Ave right now, Native East, you know, the deposit borrower, rates like 2, 2.5%. Native soul in Solana Defi is like 5, 6%. Which makes sense, right? Because if you're going to lend out your soul on Camino, natively, well, you're not staking it. You're not making 5%. So people are going to have to pay you more than that in order for you to make your asset available as collateral in defa. So what this means to put it in finance nerd terms is that the nominal yield for Seoul is higher than ETH, and that's actually problematic because you're

Starting point is 01:14:06 competing with staking for D-Fi. And then the ultimate thing, and this is where it gets really interesting and ironic, is that Ethereum has higher fees. And that's good for H-QLA consideration, because we always think of fees as being a cost to users, which it is. But it's a revenue to stakers. So in Ethereum, because inflation is very low, but fees are actually high, you have a very positive real yield. So just to review, the real yield is the actual yield you earn in any currency above the inflation rate. And in Ethereum, it's actually a pretty impressive thing that it's like currently in the, what, three to four percent range? I guess, well, we subtract inflation, it would be like three, two and a half. But then when activity is high, the real yield is even

Starting point is 01:15:02 higher. And then you have the burn mechanism. There's a few other nuances that like if ETH has a higher convenience field for the same reason, people want to hold more of it to pay future gas fees compared to Solana. So ironically, if your fees are too low and your inflation is too high, which every single one of these high performance chains is going to have that problem. One, they're young. And two, if your validation requires sophisticated hardware and expensive bandwidth, you have to pay people for that. It becomes a little bit actually like how proof of work works, which is like proof of work, all else being equal, always need more inflation than proof of stake because you got to pay the miners.

Starting point is 01:15:47 They got high electric bills and hardware costs. So Solana and all the other high performance chains are going to have this problem where they're going to have negative real yield for the foreseeable future. Now, to be fair, Solana inflation ratchets down every year. And even though they keep optimizing the network to maintain low transaction costs, maybe there's enough demand that shows up that in aggregate, stakers end up earning more. But for now, as far as like a pure asset that people want to hold and use as collateral for financial activity across all of crypto, to me, ETH is the standalone HQLA. For HQLA's, I want to ask about just what doors open up for the assets that cross the chasm into being an HQLA. There are certain opportunities that are open to assets that have this status versus other. that don't. What are those opportunities and how does it kind of create like a feedback loop of the

Starting point is 01:16:50 nature of the HQLA? So ultimately it comes down to the fact that it's an asset that people want to hold today because there's more you can do with it today and tomorrow. So going back to the Tratify context, like the reason why everybody in the world wants to hold U.S. Treasuries, because that's the HQLA, is one, they sort of trust the U.S. government, they trust the Fed, they don't think we're going to have like runaway inflation. But two, there's just so much you can do with it. Like if you have a treasury bond and you need to sell it, you can sell it. You can sell a lot of it and you're barely going to move the market. Or you can borrow against it. Right. So there's this massive, it's called the repo market where trillions of dollars a day where there are people who are literally like,

Starting point is 01:17:33 I have a treasury bond, I need dollars till tomorrow. Here, you get my bond. I get your dollars, interest exchanged. And then it's great collateral. Like you want to do a deal. You need to put money in escrow. You want a bank to put on some kind of a structured levered product for you. So bringing back to the crypto context, I think as institutions come into it, and this is how institutions think, right? Like individuals tend to think like, what chain do I like? What coin do I like? What's going to go up more next week or next week?

Starting point is 01:18:08 But when institutions come in that have these five, 10-year horizons, they're going to want some Bitcoin. because that's the world's backup money, but then they're going to be like, man, I can't do anything with this Bitcoin, right? Like, I can lend it, but how am I going to lend it? I have to go through an intermediary. It's no longer as decentralized.

Starting point is 01:18:25 You can lend a Bitcoin ETF pretty well. Yeah, that's a good point. And people will. But again, it's like you're taking multiple layers of trust assumptions, both with the ETF issuer. And frankly, like, you need a brokerage account in a developed country,

Starting point is 01:18:39 mainly the U.S. to get access to the ETF. There are ETFs in other countries, but do we trust the issuer, yada, yada, yada. So these institutions, I think, are going to be like, ETH. Obviously, they want to go long crypto. Like, that's a requirement. But they're like, hey, ETH is special because it's actually a very rare thing that even U.S.

Starting point is 01:18:59 Treasuries don't have, which is it's borderline deflationary in terms of total supply. Sometimes it is. Sometimes it isn't. But it pays interest. And I think a lot of institutions are going to say, I want to hold this because, like, well, today I'm earning yield and I'm not being diluted via inflation. That's good. But then tomorrow, if I need to sell it, I can. If I need to borrow dollars or Swiss francs against it, I can.

Starting point is 01:19:25 If I want to go to another financial institution that believes in crypto and say, hey, I want a loan, I want you to do a derivative trade for me. They will accept my eth as collateral. With United States treasuries and other very liquid bonds, there's this notion of cash and cash-like, instruments, and these cash-like instruments are effectively treated like cash inside of this context, right? Like, whether you own 10 U.S. dollars or you own 10 U.S. dollars worth of bonds, like many institutions will basically count that as the same because of how liquid the bond market is. And I think that's kind of what you're alluding to here. And there's a definition of money out there. Money is the most saleable good. It's the easiest to sell wherever you are in the world without

Starting point is 01:20:10 out any sort of like loss of its value. And so what you're kind of alluding to is kind of what me and Ryan are saying why we say eth is money. This is where I kind of think that this conversation is pointing to. I wonder what you think about the idea of yeah, this is what money is and ether is pointing towards being the money of the internet. So I struggle with the money point because people get hung up on the money word all the time. Yeah. And let me tell you why I get hung up on it. So in the years I've been trying to learn about money, either for my own reasons, for my books, or for my class, it never ceases to amaze me how, like, the more you study the history of money, the more nuance there is to it. You know, the academic stuff that I teach in my money lecture, the properties of money, the characteristics of money, the types of money, yada, yada, yada. But really, like, any time you come up with a rule that says money is this, you can probably find a society, a major global, important society.

Starting point is 01:21:07 somewhere that that was definitely not their money. And maybe their money was something that today we wouldn't consider money. And just money is such a social thing at the end of the day. It's like we all know Yuval Harare. It's the ultimate social technology and human invention. It's so hard to put brackets around social things. Like I also joke with students that like if someone asked me what is money, I ask them what is art. And then it's like, you know, art is whatever ends up being art. That's my definition of art. And a lot of times like what one, generation says it's definitely not art, the next generation is like, that's absolutely art. And I think money could work that way. So I think ETH has very strong moneyness properties.

Starting point is 01:21:49 But I think the easier question to answer, David, is what's an asset? The asset question is like you're bringing it down to Earth. It's not as much up in the ether, pardon the pun. And I think ETH is going to be the major asset if we project everything forward. Now, a lot could go wrong, right? It's still early. It's possible that the Ethereum community and the roadmap takes some wrong turns. It's possible that I'm wrong. I've been wrong about things before.

Starting point is 01:22:21 But if we project forward and the few requirements that I said come true, one is like, on-chain is better than off-chain. I think most people in crypto would agree with. That, two, that hierarchical settlement is better than monolithic. Let's say that the base 50-50 right now. And then three, that all assets eventually get tokenized and move on chain. We're going to need something that's the glue that holds all of this together. And that's like the role that dollars and treasuries play in the global economy today, right?

Starting point is 01:22:56 It's not just that. Like we think of dollars or reserve currency, other countries keep. their reserves in dollars, yes, but the dollar is also the greatest source of credit. There are other major currencies that central banks hold as foreign reserves, but like people don't go and borrow in them. One of the reasons the dollar perpetuates itself as the global reserve currency, even though you could argue we as America are doing things that's going to harm that status, is if you want to go and borrow, you got to borrow in dollars, because just the liquidity is there, the interest

Starting point is 01:23:31 rate is low, a lot of capital available. I think ETH is currently the best candidate to be that in a defy-centric role to come. I still haven't heard anything Omead I disagree with in this entire episode. To me, that's money. Oh, yeah, we should keep going then. It's scary if we agree on everything. Well, what I think is really interesting is that this idea of high-quality liquid asset is basically you're saying if you're betting on defy, like truly just, centralized finance across all of these different layer two economies, right? And you're not relying on an intermediary. And if that comes to fruition, then you're going to need a collateral asset. Justin Drake has come on. We've called it economic bandwidth before. You could call it money,

Starting point is 01:24:16 high moneyness, if you wish, or a high quality liquid asset. And that's going to propagate. And what's so interesting about that is once you have this, you could call it an internet bond, right? It sort of serves the way treasuries do, the way T-built does, where it's like, you know, the risk-free rate is, you know, whatever treasury is paying out. Well, the risk-free rate of capital on the internet could be the eith staking rate, which would be really interesting. If you get the depth of liquidity here, and you can really see how transformative and powerful that this concept could be. One sacrifice in this whole modular design that we're sort of making, and the emphasis on kind of like the settlement layer is some of those transaction fees are going to layer twos, which are able to capture,

Starting point is 01:24:57 at least right now, some portion of MEV and some portion of like, you know, block. conclusion fees, right? And so in the short run, we're actually seeing if less performant as a capital asset, an ability to kind of like throw off cash. And this goes back to the question I was also asking, which is like, are L2's parasitic? I mean, I think my answer, let's see if we agree here. My answer to that would be like, in the short run, sure, if you're just looking at ETH from a cash flow perspective, right, L2s are going to consume some of that cash. But by the way, that's not really sustainable for L2s. I think of the fullness of time. time, MEV goes to apps, not L2s themselves, but more MEV flows to apps. And then after that,

Starting point is 01:25:37 like, it won't be sustainable for the apps to capture it all. It'll flow to kind of like users, right? And we'll have this downstream effect. So I don't think any transaction fees for any blockchain are like infinitely sustainable for all time. Like the take rate is going to get lower and lower as this Cambrian explosion of competitive pressures like propagate. And so all you're left with is money. So if your layer one asset is not a good money, it ain't worth nothing. It is kind of my like taking the fullness of time. Of course, that's a hyperbolic way of saying it, you know, but I sort of believe that. Anyway, back to the L2s are parasitic take. My take would be that L2s might look somewhat parasitic in the short run in that they're taking some of the

Starting point is 01:26:16 fee capture from Ethereum as the theorem. The base layer is expanding block space. But what ETH gets in return, ETH the asset that is, is monetary premium, is more status as a high quality liquid asset propagated across all of these layer two economies that are just in their infancy, but are going to be absolutely massive. And that's how I value ETH. Almost similar to Bitcoin, it's like a monetary asset, right? What's your take on that? You know, like the L2s are parasitic question. Do you think they are? No. I think that goes back to that tweet of mine that you mentioned, that if you believe that you think that Blockspace and an almost fully centralized roll-up, it's just as good as on Ethel 1. I mean, first of all, actually before that, just financially speaking,

Starting point is 01:26:58 if you're trading meme coins on base and paying, I don't know what the fees on base are right now, but it's sub 1 cent probably per transaction. And the same trade on L1 would cost $2. They cannot be parasitic. Because there's a lot of people who it wouldn't make sense for them to pay $2 to do the trade on the L1.

Starting point is 01:27:20 So that's this idea you guys have covered before. It's induced demand. When you have the L2s, you get new users doing new kinds of activity. literally not possible on the L1 because it's not economical. The other thing is this provisioning of security, I think there are a lot of cool ways that L2s can become secure and decentralized and inherit the decentralization of the L1.

Starting point is 01:27:46 You guys have done a great job of covering all that, especially in the beginning when like the rest of us are like, wait, what's an optimistic roll-up and how's it different from a ZK1? but at the end of the day, they'll never be perfect. They will never have the same safety, liveliness, and censorship resistance properties of the L1, partly because they're not going to optimize for that. The Coinbase is not going to optimize for that.

Starting point is 01:28:08 It shouldn't optimize for that with base. So there's this debate of, like, people say, oh, uniswap generates whatever in fees on Ethel 1 today. It's the number one consumer of gas. All of that, it's going to move to unichain. I'm not going to do that. the bulk of my assets today live on Ethereum, my ETH-based assets. And when I do a trade, I'm okay paying high gas fees and waiting 12 seconds, et cetera, et cetera, because I want those settlement

Starting point is 01:28:40 assurances. Now, forget me, I'm not important. What's that pension fund that owns billions of dollars worth of crypto going to want to do? They're not just going to go to some L2 because it's, Oh, it's cheaper. Okay, sure. They're actually like, I do think this is a future state that institutions are going to have entire risk departments whose job it is to study and categorize the decentralization and settlement properties of different chains. Because that's what institutions do today. They look at the infrastructure they use. They look at the counterparties that they use, and they're very, very methodical and sophisticated about it. I think in the future, they will do this and they will say, well, we are big fish doing big things.

Starting point is 01:29:25 We're going to live on L1. So I don't think D5, by the way, will ever leave L1 because they're always going to be whales. And some of these institutions, by the way, like in Triadfly, what they're doing is batching and netting for like 10 million retail customers, right? Maybe they're fintech, and they're using L1DFI as their wholesale settlement layer, like they're FedWI or DTCC. So in that regard, it's not parasitic.

Starting point is 01:29:50 Are there some people today that are like, oh, yeah, I was trading dog coins or whatever on ethel one because I had to. And now I'm moving to the L2 because it's cheaper and makes more sense for me. Sure. But that's just efficiency. It's not parasitic. And I do think the last point I'll make about, yes, I do think L2s will ultimately improve the quality of ETH, the asset or the money, however we categorize it. let's zoom out for a second and set the financial aside. At the end of the day, I think one of the very novel things about blockchain networks is that the only way to capture the network effects is through

Starting point is 01:30:32 the coin. This was another epiphany I had with Bitcoin. Bitcoin is one of the most valuable networks or platforms, if you will, on Earth. But there's no Bitcoin Inc. that owns it. And that's unprecedented, right? Every other valuable network, whether it's Visa, NASDA, WhatsApp, Twitter, whatever, there's a corporation that captures and extracts network effects. But with decentralized crypto networks, because they're decentralized, the coin becomes the only way to capture all the network effects. And that's this beautiful flywheel idea that Satoshi innovated that, oh, if the coin is the thing that secures the networks and the thing that captures the network effects, then more activity means higher coin value,

Starting point is 01:31:20 means more security, means more activity, right? And ultimately, like, Trat-Fi people will come into me and be like, I want to invest in Bitcoin. Should I buy mining stocks or, like,

Starting point is 01:31:30 crypto exchange? I'm like, no, you should own Bitcoin. Totally. And if we get to this world that I think we will, particularly because the L2 approach gives flexibility. Right? So I think we're going to see more and more

Starting point is 01:31:45 Trat-Fi firms with their own L-2s. I think we're going to see like gaming companies and media companies and chat apps all do their own L2s. All of that is going to really strengthen the network effects of Ethereum and five years from now when some Tradfite late cover comes to me, be like, how do I invest in the success of the network effects of Ethereum? I'm going to be like, well, the only way to do it is to own ETH. Yeah, I completely agree with that. And I do think settlement assurances are like the reason. And even when you look at the other high-quality liquid asset that's in the world, we're in a post-gold world for that, you know, have been in some time. It's really T-bills and treasuries. And you think about how did the U.S. get to become the high-quality liquid asset of the world? Like, and create Fedwire and then all of the stuff on top and have the risk-free rate and its, you know, T-bills. Well, had to win a war. Like, you'll fight a world war for that level of security and settlement assurances. And then 70 years of just like killer economic output and creating this security shield. and trade network across the world, that's how the settlement assurances of treasuries are basically

Starting point is 01:32:50 preserved and propagated. So it's like, even with treasuries, it's like settlement assurances all of the way down. And I think if ETH is going to attain it, it will be kind of the way the U.S. did. Of course, it doesn't need to have a money printer, so it's not fiat in that way, but it'll be the strength of its economies that it's launching, the L2 economies built on top of it. It'll be the trade networks that essentially creates. It'll be the credible neutrality of all of them. It will be having a grade A security force, like a military, to shield all of these and to preserve the property rights. That's kind of the path I see for ether. Maybe to close this out, oh me, sort of a last question here, maybe we'll finally find something that we disagree on, which is like crypto cycles, okay? I'm not sure what your take is here. But like, do you believe that we are in a bull cycle right now? I think maybe you have some contrarian takes about the recent Fed rate cuts and how, like, this may not play out this, you know, like same way it is played out previous. obviously, I'll put my cards on the tape and I'll say, I'm pretty bullish on 2025 for crypto, but also David and I are not macro experts. So anyway, is there any daylight between us on this issue?

Starting point is 01:33:55 Like, what do you think about the current cycle that we're in if you have any takes here? And by the way, Omead students, not financial advice. Do not listen to this next section. So one of the most important lessons I learned when I was a trader, actually, the most important lesson I learned when I was a professional trader is that I am not a good trader, which is why I don't do it anymore. And thank God for that. But the second most important lesson I learned is that markets never repeat. They will often set you up to make you think they're going to do the same exact thing as the last time, whether that's like a year ago or decade ago. And then they don't because markets are a discounting mechanism. There's reflexivity.

Starting point is 01:34:34 People are too smart for that. So, you know, there's a lot of people who think, oh, the last we went into a Fed cut cycle, X, Y, and Z happened, right? Everything ripped, huge bull market, 2021, et cetera. I'm doubtful. If high interest rates did not kill the economy or asset price, most assets are at all-time highs, were at all-time highs just a month ago in a world where U.S. interest rates were the highest they've been in decades. So there's probably more going on, and like I'll defer to people, farmer, sophisticated and me on this, like the Lin-Aldens of the world, that I do think the whole interest rate theory was based on this idea that central banks control the creation or supply of money by moving interest rates up and down.

Starting point is 01:35:24 The problem with that model now is that the single biggest borrower on the planet is rate insensitive. The U.S. government does not care if it's actually issuing more debt. when rates are at 5%, then when they were at zero. And the one thing that both presidential candidates running for office agree on is we need more debt. So I'm concerned that like the macro situation is not going to play out as it did before. It doesn't mean we're going down. It doesn't mean I'm bearish.

Starting point is 01:35:57 I do own crypto as I have for the last 10 years and I just plan on holding it because long term I do think it will be a superior investment for all the reasons we we've talked about here. But I think obviously the election's going to matter because of the regulatory situation in the U.S. I have no idea who's going to win, so we'll set that aside. I think we're at the point now for crypto that if we want to get a sustainable market, we need adoption. Bitcoin hit that partly because of the ETS, because the main thing people want to do with Bitcoin is hold it. And the people who want to own it through the ETF are actually betting that, other people will want to hold it natively, purely on-chain, whatever, that's perfectly fine.

Starting point is 01:36:41 I think with everything else in crypto, whether we are talking about L-1s or D-Fi tokens or blockchain gaming or what have you, we need sustained adoption. We've seen that with stable coins. I think our mutual friend, Nick Carter, has done a great job. He comes to my class every semester, talks about Bitcoin and Stable Coins. He was just there, right? Yeah, yeah. He's very generous with his time. And my students always are appreciate it. So I think stable coins are really going to take off in the next year or two, and that's going to be awesome because they're going to do it in a way that actually reflects

Starting point is 01:37:16 back on some of the things that we're talking about. And fintechs or users are going to make choices, or use Trond, or use Ethereum, they're used base, or use Solana, and that'll be fascinating to see how, but it's adoption. It's net positive. I think something like a polymarket is pretty cool, because polymarket is very much a crypto-native story. People have been trying to to do decision markets for decades, but the scale at which Polly Market has succeeded is only possible on a global 24-7 censorship-resistant crypto network. And then the other stuff to come, and this part is maybe wishful thinking on my part, but I also think that we as a community are going to grow up and start valuing assets based on actual metrics and fundamentals.

Starting point is 01:38:04 and just stop with this. I've heard that before. That's one of the things I've been wrong about, as my sagging defy token bags would tell you. But I think it's still an immature market, and I think like the next bull market will require maturation, which might actually come from like more Tratfight types showing up and being like, wait a minute,

Starting point is 01:38:26 these coins have no inflation and accrue value and revenues and stable governance. Here's some hot new thing where, like, three entities own 70% of the supply, and it's going to have 10% inflation. That's a good investment. That's not. So that might take some time, though. So maybe this is what we disagree on, that I'm not expecting, like, an imminent bull market in crypto. Yeah, I might lightly disagree there, but not a high conviction disagreement with respect to timing on that one. Like, who knows? And I think your take on this is like, hey, every four years crypto gets a bull market, just like might not play out. don't count on it. Maybe this time we actually need kind of the apps and the economies to grow up

Starting point is 01:39:06 a little bit before we sort of quote unquote deserve our, you know, like bowl market and our gains here. So yeah, I can vibe with that. Omead, this has been a great conversation. I mean, you have a number of books that you've written, one called The Story of Blockchain, that's from 2018. The other that David mentioned in the intro here is called Rear Architecting Trust. Donkrad's favorite book, as I understand. Like, yeah, I was asking around about you a little bit. And he said, yeah, It's just a fantastic book. So, or for those links, we'll be in the show notes for bankless listeners. And did I hear you say something about, are you writing another book?

Starting point is 01:39:40 You got something else in you, Omeet? No book now. The trouble with books is they take a long time to write. And then by the time they're published, they're already dated, particularly in a fast-moving world. There's some of the stuff in my first book that's like a little cringe-worthy when I look back on it. Oh, man, I really like wrote about a little bit, like in the appendix about Ripple. and Cardano, oof. Have you considered a podcast, sir?

Starting point is 01:40:04 Because, you know, it's a fast way to get your ideas out there quickly. I have, and I do not have the discipline and work ethic that I know it requires. Like, I told you before we went live, like, God bless you guys. I just, having done stuff around media in the past, I just, it's like, you know, for every hour that the user hears, it's like 10 times as many hours of prep and post and stuff. So, no, I mean, I'm happy actually, like, doing the various random kinds of rights. writing I do on Twitter and medium and in other places, just because it helps me flush out my own ideas and teaching, of course.

Starting point is 01:40:38 Well, you're also a fantastic follow on Twitter. So if that's where listeners want to consume their content, we can definitely link your Twitter account in the show notes as well. Great. Thanks, guys. And always happy to come back here and continue this conversation. We can't wait with our explainer and chief. This has been fantastic.

Starting point is 01:40:55 A lot of great takes on today's episode. Got to end with these typical disclaimers, especially for those students of Omead. Crypto is risky. You could lose what you put in. None of this has been financial advice, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.

Bankless - ETH vs. SOL: A Professor's Take | Omid Malekan

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